Demonstration problem barfield raiborn kinney cost accounting_3 docx

Chapter 5 Job Order Costing 193 A cost accounting system should be compatible with the manufacturing environ- ment in which it is used. Job order costing and process costing are two traditional cost accounting systems. Job order costing is used in companies that make a lim- ited quantity of products or provide a limited number of services uniquely tailored to customer specifications. This system is especially appropriate and useful for many service businesses, such as advertising, legal, and architectural firms. Process costing is appropriate in production situations in which large quantities of homo- geneous products are manufactured on a continuous flow basis. A job order costing system considers the “job” as the cost object for which costs are accumulated. A job can consist of one or more units of output, and job costs are accumulated on a job order cost sheet. Job order cost sheets for un- completed jobs serve as the Work in Process Inventory subsidiary ledger. Cost sheets for completed jobs not yet delivered to customers constitute the Finished Goods Inventory subsidiary ledger, and cost sheets for completed and sold jobs compose the Cost of Goods Sold subsidiary ledger. In an actual or a normal cost job order system, direct material and direct la- bor are traced, respectively, using material requisition forms and employee time sheets, to individual jobs in process. Service companies may not attempt to trace direct material to jobs, but instead consider the costs of direct material to be part of overhead. Tracing is not considered necessary when the materials cost is in- significant in relation to the job’s total cost. Technology is playing an increasing role in aiding the management of jobs and in tracking job costs. Even basic accounting software typically has a job costing module. By automating the data entry processes, more accurate and timely data are gathered and employees are relieved of the recurring burden of logging data. The latest technology being adopted in job shops is project management software. These programs allow operational and financial data about jobs to be shared throughout the firm. Intranets are being created to facilitate the dissemination of this information. In an actual cost system, actual overhead is assigned to jobs. More commonly, however, a normal costing system is used in which overhead is applied using one or more predetermined overhead rates multiplied by the actual activity base(s) in- curred. Overhead is applied to Work in Process Inventory at the end of the month or when the job is complete, whichever is earlier. Standard costing can be utilized in a job shop environment. Standards may be established both for the quantities of production inputs and the prices of those in- puts. By using standard costs rather than actual costs, managers have a basis for evaluating the efficiency of operations. Differences between actual costs and stan- dard costs are captured in variance accounts. By analyzing the variances, managers gain an understanding of the factors that cause costs to differ from the expected amounts. Standard costing is most easily adopted in job shops that routinely pro- duce batches of similar products. Job order costing assists management in planning, controlling, decision mak- ing, and evaluating performance. It allows managers to trace costs associated with specific current jobs to better estimate costs for future jobs. Additionally, managers using job order costing can better control the costs associated with current pro- duction, especially if comparisons with budgets or standards are used. Attachment of costs to jobs is also necessary to price jobs that are contracted on a cost-plus basis. Last, because costs are accumulated by jobs, managers can more readily de- termine which jobs or types of jobs are most profitable to the organization. CHAPTER SUMMARY Part 2 Systems and Methods of Product Costing 194 KEY TERMS cost-plus contract (p. 181) employee time sheet (p. 179) intranet (p. 184) job (p. 176) job order cost sheet (p. 179) job order costing system (p. 174) material requisition form (p. 178) process costing system (p. 174) standard cost system (p. 188) variance (p. 188) Basic Journal Entries in a Job Order Costing System Raw Material Inventory XXX Accounts Payable XXX To record the purchase of raw materials. Work in Process Inventory—Dept. (Job #) XXX Manufacturing Overhead XXX Raw Material Inventory XXX To record the issuance of direct and indirect materials requisitioned for a specific job. Work in Process Inventory—Dept. (Job #) XXX Manufacturing Overhead XXX Wages Payable XXX To record direct and indirect labor payroll for production employees. Manufacturing Overhead XXX Various accounts XXX To record the incurrence of actual overhead costs. (Account titles to be credited must be specified in an actual journal entry.) Work in Process Inventory—Dept. (Job #) XXX Manufacturing Overhead XXX To apply overhead to a specific job. (This may be actual OH or OH applied using a predetermined rate. Predetermined OH is applied at job completion or end of period, whichever is earlier.) Finished Goods Inventory (Job #) XXX Work in Process Inventory XXX To record the transfer of completed goods from WIP to FG. Accounts Receivable XXX Sales XXX To record the sale of goods on account. Cost of Goods Sold XXX Finished Goods Inventory XXX To record the cost of the goods sold. SOLUTION STRATEGIES Advanced Exploration is a newly formed firm that conducts marine research in the Gulf of Mexico for contract customers. Organizationally, the firm is composed of two departments: Offshore Operations and Lab Research. The Offshore Operations DEMONSTRATION PROBLEM Chapter 5 Job Order Costing 195 Department is responsible for gathering test samples and drilling operations on the ocean floor. The Lab Research Department is responsible for analysis of samples and other data gathered by Offshore Operations. In its first month of operations (March 2001), Advanced Exploration obtained contracts for three research projects: Job 1: Drill, collect, and analyze samples from 10 sites for a major oil company. Job 2: Collect and analyze samples for specific toxins off the coast of Louisiana for the U.S. government. Job 3: Evaluate 12 existing offshore wells for the presence of oil seepage for a major oil company. Advanced Exploration contracts with its customers on a cost-plus basis; that is, the price charged is equal to costs plus a profit equal to 10 percent of costs. The firm uses a job order costing system based on normal costs. Overhead is applied in the Offshore Operations Department at the predetermined rate of $2,000 per hour of research vessel use (RVH). In the Lab Research Department, overhead is applied at the predetermined rate of $45 per professional labor hour (PLH). For March 2001, significant transactions are summarized here: 1. Materials and test components were purchased on account: $110,000. 2. Materials were requisitioned for use in the three research projects by the Offshore Operations Department (all of these materials are regarded as direct): Job #1— $40,000; Job #2—$28,000; and Job #3—$10,000. Materials were issued to the Lab Research Department: Job #1—$8,000; Job #2—$6,000; and Job #3—$4,500. 3. The time sheets and payroll summaries indicated the following direct labor costs were incurred: Offshore Operations Lab Research Job #1 $60,000 $56,000 Job #2 50,000 20,000 Job #3 45,000 16,000 4. Indirect research costs were incurred in each department: Offshore Operations Lab Research Labor $120,000 $10,000 Utilities/Fuel 290,000 5,000 Depreciation 330,000 80,000 5. Overhead was applied based on the predetermined overhead rates in effect in each department. Offshore Operations had 360 RVHs (170 RVHs on Job #1; 90 RVHs on Job #2; and 100 RVHs on Job #3), and Lab Research worked 2,300 PLHs (1,400 PLHs on Job #1; 500 PLHs on Job #2; and 400 PLHs on Job #3) for the year. 6. Job #1 was completed and cash was collected for the agreed-on price of cost plus 10 percent. At the end of the month, Jobs #2 and #3 were only partially complete. 7. Any underapplied or overapplied overhead is assigned to Cost of Goods Sold. Required: a. Record the journal entries for transactions 1 through 7. b. As of the end of March 2001, determine the total cost assigned to Jobs #2 and #3. Solution to Demonstration Problem a. 1. Raw Material Inventory 110,000 Accounts Payable 110,000 To record purchase of materials. 2. WIP Inventory—Offshore Operations (Job #1) 40,000 WIP Inventory—Offshore Operations (Job #2) 28,000 WIP Inventory—Offshore Operations (Job #3) 10,000 Raw Material Inventory 78,000 To record requisition and issuance of materials to Offshore Operations. WIP Inventory—Lab Research (Job #1) 8,000 WIP Inventory—Lab Research (Job #2) 6,000 WIP Inventory—Lab Research (Job #3) 4,500 Raw Material Inventory 18,500 To record requisition and issuance of materials to Lab Research. 3. WIP Inventory—Offshore Operations (Job #1) 60,000 WIP Inventory—Offshore Operations (Job #2) 50,000 WIP Inventory—Offshore Operations (Job #3) 45,000 Wages Payable 155,000 To record direct labor costs for Offshore Operations. WIP Inventory—Lab Research (Job #1) 56,000 WIP Inventory—Lab Research (Job #2) 20,000 WIP Inventory—Lab Research (Job #3) 16,000 Wages Payable 92,000 To record direct labor costs for Lab Research. 4. Research Overhead—Offshore Operations 740,000 Research Overhead—Lab Research 95,000 Wages Payable 130,000 Utilities/Fuel Payable 295,000 Accumulated Depreciation 410,000 To record indirect research costs. 5. WIP Inventory—Offshore Operations (Job #1) 340,000 WIP Inventory—Offshore Operations (Job #2) 180,000 WIP Inventory—Offshore Operations (Job #3) 200,000 Research Overhead—Offshore Operations 720,000 To record application of research overhead. WIP Inventory—Lab Research (Job #1) 63,000 WIP Inventory—Lab Research (Job #2) 22,500 WIP Inventory—Lab Research (Job #3) 18,000 Research Overhead—Lab Research 103,500 To record application of research overhead. 6. Finished Goods Inventory* 567,000 WIP Inventory—Offshore Operations 440,000 WIP Inventory—Lab Research 127,000 To record completion of Job #1. Cash 623,700 Research Revenues** 623,700 To record sale of Job #1. Cost of Goods Sold 567,000 Finished Goods Inventory 567,000 To record cost of sales for Job #1. 7. Cost of Goods Sold 11,500 Research Overhead—Lab Research 8,500 Research Overhead—Offshore Operations 20,000 To assign underapplied and overapplied overhead to cost of goods sold. *Job #1 costs ϭ $40,000 ϩ $8,000 ϩ $60,000 ϩ $56,000 ϩ $340,000 ϩ $63,000 ϭ $567,000 **Revenue, Job #1 ϭ $567,000 ϫ 1.10 ϭ $623,700 Part 2 Systems and Methods of Product Costing 196 b. Job #2 Job #3 Direct material—Offshore Operations $ 28,000 $ 10,000 Direct labor—Offshore Operations 50,000 45,000 Research overhead—Offshore Operations 180,000 200,000 Direct material—Lab Research 6,000 4,500 Direct labor—Lab Research 20,000 16,000 Research overhead—Lab Research 22,500 18,000 Totals $306,500 $293,500 Chapter 5 Job Order Costing 197 1. When a company produces custom products to the specifications of its cus- tomers, why should it not aggregate costs across customer orders to determine the prices to be charged? 2. What production conditions are necessary for a company to use job order costing? 3. What is the alternative to the use of a job order costing system? In what type of production environment would this alternative costing system be found? 4. Identify the three valuation methods discussed in the chapter. What are the differences among these methods? 5. In a job order costing system, what is a job? 6. What are the three stages of production of a job? Of what use is cost infor- mation pertaining to completed jobs? 7. What are the principal documents used in a job order costing system and what are their purposes? 8. Why is the material requisition form an important document in a company’s audit trail? 9. What is a job order cost sheet, and what information does it contain? How do job order cost sheets relate to control accounts for Work in Process, Finished Goods, and Cost of Goods Sold? 10. Of what use to management are job order cost sheets? Why do some job or- der cost sheets contain columns for both budgeted and actual costs? 11. “Because the costs of each job are included in the job order cost sheet, they do not need to be recorded in the general ledger.” Is this statement true or false, and why? 12. Which document in a job order costing system would show the amount of overtime worked by a specific individual? Explain. 13. Is an actual overhead application rate better than a predetermined overhead rate? Why or why not? 14. What creates underapplied or overapplied overhead when applying overhead to jobs? 15. What is the principal difference in job order costing between service and manu- facturing firms? 16. How is the cost of goods sold determined in a company that uses job order costing? 17. How are the advancement of technology and the development of new soft- ware affecting the accounting function in job order costing systems? 18. Many software companies produce custom programs for computerized ac- counting applications. Search the Internet and find two or more companies that make software for job order costing (job costing). Read the ads and de- scriptions of the job order costing software and identify five of the most im- portant capabilities (or modules) that the software company offers. Write one QUESTIONS to two pages describing how these modules might be used in a company that custom manufactures robotic equipment used in manufacturing applications. 19. What differences exist between job order costing based on actual costs and job order costing based on standard costs? Why would a company use a stan- dard cost job order system? 20. If a company produces a given type of product only one time, will standard costing be as useful as if the company continually produces the same type of product? Explain. 21. How does a firm use information on “variances” in a standard costing system to control costs? 22. How can the implementation of a job order costing system help improve man- agerial decision making? Part 2 Systems and Methods of Product Costing 198 23. (Classifying) For each of the following firms, determine whether it is more likely to use job order or process costing. This firm a. does custom printing. b. manufactures paint. c. is involved in landscape architecture. d. is an automobile repair shop. e. provides public accounting services. f. manufactures hair spray and hand lotion. g. is a hospital. h. cans vegetables and fruits. i. designs custom software. j. provides property management services for a variety of real estate develop- ments. 24. (Journal entries) Olson Inc. produces custom-made floor tiles. During June 2001, the following information was obtained relating to operations and production: 1. Direct material purchased on account, $85,000. 2. Direct material issued to jobs, $81,900. 3. Direct labor hours incurred, 1,700. All direct factory employees were paid $18 per hour. 4. Actual factory overhead costs incurred for the month totaled $41,100. This overhead consisted of $9,000 of supervisory salaries, $17,500 of deprecia- tion charges, $3,600 of insurance, $6,250 of indirect material, and $4,750 of utilities. Salaries, insurance, and utilities were paid in cash, and indirect material was removed from the supplies account. 5. Overhead is applied to production at the rate of $25 per direct labor hour. The beginning balances of Raw Material Inventory and Work in Process Inventory were $4,150 and $11,150, respectively. The ending balance in Work in Process Inventory was $2,350. a. Prepare journal entries for the above transactions. b. Determine the balances in Raw Material Inventory and Work in Process Inventory at the end of the month. c. Determine the cost of the goods completed during June. If 5,000 similar units were completed, what was the cost per unit? d. What is the amount of underapplied or overapplied overhead at the end of June? 25. (Journal entries; cost flows) U Store It produces customized storage buildings that serve the midwest U.S. market. For February 2001, the company incurred the following costs: EXERCISES Direct material purchased on account $19,000 Direct material used for jobs Job #217 $11,200 Job #218 1,800 Other jobs 13,400 26,400 Direct labor costs for month Job #217 $ 2,600 Job #218 3,500 Other jobs 4,900 11,000 Actual overhead costs for February 18,900 The February beginning balance in Work in Process Inventory was $4,200, which consisted of $2,800 for Job #217 and $1,400 for Job #218. The Febru- ary beginning balance in Direct Material Inventory was $12,300. Actual overhead is applied to jobs on the basis of direct labor cost. Job #217 was completed and transferred to finished goods during February. It was then sold for cash at 140 percent of cost. a. Prepare journal entries to record the above information. b. Determine the February ending balance in Work in Process Inventory and the amount of the balance related to Job #218. 26. (Cost flows) Custom Landscapes began operations on March 1, 2001. Its Work in Process Inventory account on March 31 appeared as follows: Work in Process Inventory Direct material 554,400 Cost of completed jobs ?? Direct labor 384,000 Applied overhead 345,600 The company applies overhead on the basis of direct labor cost. Only one job was still in process on March 31. That job had $132,600 in direct material and $93,600 in direct labor cost assigned to it. a. What was the predetermined overhead application rate? b. How much cost was transferred out for jobs completed during March? 27. (Normal versus actual costing) For fiscal year 2001, Lazlow Metalworks esti- mated it would incur total overhead costs of $1,200,000 and work 40,000 ma- chine hours. During January 2001, the company worked exclusively on one job, Job #1211. It incurred January costs as follows: Direct material usage $121,000 Direct labor (1,400 hours) 30,800 Manufacturing overhead: Rent $11,200 Utilities 15,200 Insurance 32,100 Labor 15,500 Depreciation 23,700 Maintenance 10,800 Total OH 108,500 Machine hours worked in January: 3,400 a. Assuming the company uses an actual cost system, compute the January costs assigned to Job #1211. b. Assuming the company uses a normal cost system, compute the January costs assigned to Job #1211. c. What is the major factor driving the difference between your answers in parts (a) and (b)? Chapter 5 Job Order Costing 199 As the accountant of Integrated Solutions, you must find the following: a. Cost of goods sold for the year. b. Cost of goods completed during the year. c. Cost of direct material used during the year. d. Amount of applied factory overhead during the year. e. Cost of direct material purchased during the year. 29. (Departmental overhead rates) Ashford Paving Company uses a predetermined overhead rate to apply overhead to jobs, and the company employs a job or- der costing system. Overhead is applied to jobs in the Mixing Department based on the number of machine hours used, whereas Paving Department overhead is applied on the basis of direct labor hours. In December 2000, the company estimated the following data for its two departments for 2001: Mixing Department Paving Department Direct labor hours 1,000 3,500 Machine hours 7,500 1,500 Budgeted overhead cost $60,000 $98,000 a. Compute the predetermined overhead rate that should be used in each de- partment of the Ashford Paving Company. b. Job #116 was started and completed during March 2001. The job cost sheet shows the following information: Mixing Department Paving Department Direct material $5,800 $700 Direct labor cost $60 $525 Direct labor hours 12 60 Machine hours 80 22 c. Compute the overhead applied to Job #116 for each department and in total. d. If the company had computed a companywide rate for overhead rather than departmental rates, do you feel that such a rate would be indicative of the actual overhead cost of each job? Explain. Part 2 Systems and Methods of Product Costing 200 Direct Material Inventory Beg. bal. 6,150 Purchases ? ? 2,050 Finished Goods Inventory Beg. bal. 22,500 Goods completed ? 342,500 21,000 Work in Process Inventory Beg. bal. 14,000 Direct mat. ? ? Direct labor 45,000 Overhead 12,000 Cost of Goods Sold ? 28. (Cost flows) Integrated Solutions manufactures hardware for local-area networks. The firm applies overhead to jobs at a rate of 120 percent of direct labor cost. On December 31, 2001, a flood destroyed many of the firm’s computerized cost records. Only the following information for 2001 was available from the records: 30. (Job cost and pricing) Jason Hart is an attorney who employs a job order cost- ing system related to his client engagements. Hart is currently working on a case for Janice Keene. During the first four months of 2001, Hart logged 85 hours on the Keene case. In addition to direct hours spent by Hart, his secretary has worked 14 hours typing and copying 126 pages of documents related to the Keene case. Hart’s secretary works 160 hours per month and is paid a salary of $1,800 per month. The average cost per copy is $0.04 for paper, toner, and machine rental. Telephone charges for long-distance calls on the case totaled $165.50. Last, Hart has estimated that total office overhead for rent, utilities, parking, and so on, amount to $7,200 per month and that, during a normal month, he is at the office 120 hours. a. Hart feels that his time, at a minimum, is worth $40 per hour, and he wishes to cover all direct and allocated indirect costs related to a case. What minimum charge per hour (rounded to the nearest dollar) should Hart charge Keene? (Hint: Include office overhead.) b. All the hours that Hart spends at the office are not necessarily billable hours. In addition, Hart did not take into consideration certain other ex- penses such as license fees, country club dues, automobile costs, and other miscellaneous expenses, when he determined the amount of overhead per month. Therefore, to cover nonbillable time as well as other costs, Hart feels that billing each client for direct costs plus allocated indirect costs plus 50 percent margin on his time and overhead is reasonable. What will Hart charge Keene in total for the time spent on her case? 31. (Underapplied or overapplied overhead) For 2001, Ainsworth Rafter Co. applied overhead to jobs using a predetermined overhead rate of $23.20 per machine hour. This rate was derived by dividing the company’s total budgeted over- head of $556,800 by the 24,000 machine hours anticipated for the year. At the end of 2001, the company’s manufacturing overhead control ac- count had debits totaling $562,600. Actual machine hours for the year totaled 24,900. a. How much overhead should be debited to Work in Process Inventory for 2001? b. Is overhead underapplied or overapplied and by how much? c. Job #47 consumed 750 machine hours during 2001. How much overhead should be assigned to this job for the year? d. Describe the disposition of the underapplied or overapplied overhead de- termined in part (b). 32. (Assigning costs to jobs) Westside Racing uses a job order costing system in which overhead is applied to jobs at a predetermined rate of $2.20 per direct labor dollar. During April 2001, the company spent $13,900 on direct labor re- lated to Job #344. In addition, the company incurred direct material costs of $24,800 on this job during the month. Budgeted factory overhead for the com- pany for the year was $660,000. a. Give the journal entry to apply overhead to all jobs if April’s total direct labor cost was $30,100. b. How much overhead from part (a) was assigned to Job #344? c. If Job #344 had a balance of $14,350 on April 1, what was the balance on April 30? d. Demonstrate how the company arrived at the predetermined overhead rate. Include the amount of budgeted direct labor costs for the year in your answer. 33. (Assigning costs to jobs, cost flows) Martha’s Interiors, an interior decorating firm, uses a job order costing system and applies overhead to jobs using a pre- determined rate of 60 percent of direct labor cost. At the beginning of June Chapter 5 Job Order Costing 201 2002, Job #918 was the only job in process. Costs of Job #918 included direct material of $16,500, direct labor of $2,400, and applied overhead of $1,440. During June, the company began work on Jobs #919, #920, and #921 and pur- chased and issued $34,700 of direct material. Direct labor cost for the month totaled $12,600. Job #920 had not been completed at the end of June, and its direct material and direct labor charges were $6,700 and $1,300, respectively. All the other jobs were completed in June. a. What was the total cost of Job #920 as of the end of June 2002? b. What was the cost of goods manufactured for June 2002? c. If actual overhead for June was $8,700, was the overhead underapplied or overapplied for the month? By how much? 34. (Assigning costs to jobs) Ace Show is an advertising consultant. Recently, he has been working with his accountant to develop a formal accounting system. His accountant has suggested the use of a job order costing system to simplify costing procedures. During September, Ace and his staff worked on jobs for the following companies: Angston Westside Randall Company Manufacturing Inc. Direct material cost $4,500 $8,100 $9,600 Direct labor cost $1,800 $9,450 $20,250 Number of ads designed 5 10 15 Ace is able to trace direct material to each job because most of the cost asso- ciated with material is related to photography and duplicating. The accountant has told Joe that a reasonable charge for overhead, based on previous infor- mation, is $55 per direct labor hour. The normal labor cost per hour is $45. a. Determine the total cost for each of the advertising accounts for the month. b. Determine the cost per ad developed for each client. c. Ace has been charging $4,500 per ad developed. What was his net income for the month, if actual overhead for the month was $40,000? d. Do you have any suggestions for Ace about the way he bills his clients for developing ads? 35. (Standard costing) Corner Kopy, Inc., incurred the following direct material costs in November 2002 for high-volume routine print jobs: Actual unit purchase price $0.015 per sheet Quantity purchased in November 480,000 sheets Quantity used in November 480,000 sheets Standard quantity allowed for good production 460,000 sheets Standard unit price $0.017 per sheet Calculate the material price variance and the material quantity variance. 36. (Standard costing) Carolina Mfg. uses a standard cost system. The company experienced the following results related to direct labor in December 2002: Actual hours worked 45,500 Actual direct labor rate $9.25 Standard hours allowed for production 44,200 Standard direct labor rate $9.75 a. Calculate the total actual payroll. b. Determine the labor rate variance. c. Determine the labor quantity variance. 37. (Standard costing) Gone To The Birds employs a job order costing system based on standard costs. For one of its products, a small teak-rimmed concrete bird bath (Product No. 17), the standard costs per unit are as follows: Part 2 Systems and Methods of Product Costing 202 [...]... process costing systems accumulate costs by cost component in each production department However, the two systems assign costs to departmental output differently In a job order system, costs are assigned to specific jobs and then to the units composing the job Process costing uses an averaging technique to assign the costs directly to the units produced during the period In both costing systems, unit costs... illustrates a standard cost process costing system, which is an often-used simplification of the FIFO process costing system 1 How is process costing different from job order costing? 219 220 Part 2 Systems and Methods of Product Costing INTRODUCTION TO PROCESS COSTING Assigning costs to units of production is an averaging process In the easiest possible situation, a product’s actual unit cost is found by... Determine the costs that have been incurred or Current costs Weighted average (5) Calculate the cost per equivalent unit or Calculate the EUP cost to be assigned per cost component FIFO (6) Assign the costs to inventories or Transferred out (FG or next department) Ending inventory (WIP) Verify that the total costs transferred out plus the costs in ending inventory equal step 4 Calculate the total cost to... at what cost The costs of beginning inventory are the first costs sent to Cost of Goods Sold; units remaining in the ending inventory are assigned costs based on the most recent purchase prices 223 Chapter 6 Process Costing The use of these methods for costing the production of a manufacturing firm is similar to their use by a retailer The weighted average method computes a single average cost per... information Cost accumulation in a process costing system differs from that in a job order costing system in two ways: (1) the quantity of production for which costs are accumulated at any one time, and (2) the cost object to which the costs are assigned Suppose that Lumina occasionally contracts to hand-make four-foot candles for special religious occasions For these orders, the company would use job order costing... next, the related departmental production costs are also transferred When products are complete, their costs are transferred from Work in Process Inventory to Finished Goods Inventory As in job order costing, the direct material and direct labor components of product cost present relatively few problems for cost accumulation and assignment 1 Peter Longmore, “Process Costing Demystified,” Accountancy (October... cost and may be used for product costing If such conditions do not exist, using actual overhead for product costing would result in fluctuating unit costs and, therefore, predetermined application rates are more appropriate In both job order costing and process costing systems, firms may change the definitions of cost pools or adopt new schemes for assigning overhead costs to production Such changes... one department to the next so that a total production cost can be accumulated This chapter presents process costing procedures and illustrates the weighted average and FIFO methods of calculating unit cost in a process costing system These methods differ only in the treatment of beginning inventory units and costs Once unit cost is determined, total costs are assigned to the units transferred out of a... However, because cost drivers other than direct labor are increasingly being used to apply overhead costs, single computations for “conversion EUP” will be made less often For example, the cost driver for the utilities portion of overhead cost may be machine hours; the cost driver for the materials handling portion of overhead cost may be pounds of material The increased use of multiple cost pools and/or... of equivalent units of production and cost assignment for each of the cost flow methods is presented in the next section EUP CALCULATIONS AND COST ASSIGNMENTS 4 How are unit costs and inventory values determined using the weighted average and FIFO methods of process costing? total units to account for One purpose of any costing system is to determine a product cost for use on financial statements When . Applied Overhead Total Cost 167 $ 17,7 03 $ 6,920 $ 7,960 $ 32 ,5 83 169 54, 936 7,240 8 ,32 8 70,504 170 1,218 2,000 2 ,30 0 5,518 171 154,215 28,500 43, 700 226,415 172 28,845 2,200 2, 532 33 ,577 To explain. Price Budgeted Cost Actual Cost Jan. 17 2118 30 ,000 $150,000 $120,000 $145,000 Mar. 13 2789 25,000 125,000 100,000 122,000 Oct. 20 430 0 40,000 200,000 160,000 1 93, 000 Dec. 3 4990 35 ,000 175,000. Order Costing 1 93 A cost accounting system should be compatible with the manufacturing environ- ment in which it is used. Job order costing and process costing are two traditional cost accounting